Nomura Said to Be Discussed for Costly Systemic-Risk LabelJesse Hamilton and Ian Katz
U.S. regulators are taking the first steps to determine whether Nomura Holdings Inc. should be labeled systemically important to the financial system, a move that could subject the Japanese investment bank to tougher oversight and stricter capital requirements.
Officials this week discussed whether the Financial Stability Oversight Council should begin reviewing Nomura, according to a person with knowledge of the matter. A decision to evaluate a company is the start of a process that can take months or years and may not lead to tighter regulation.
The FSOC was created by the Dodd-Frank Act to keep tabs on the greatest threats to the U.S. economy. While megabanks like JPMorgan Chase & Co. automatically get heightened oversight, the council designates other financial companies that it determines pose significant risks -- decisions that have triggered intense lobbying, lawmaker criticism and a legal challenge from MetLife Inc.
Jennifer Will, a New York-based spokeswoman for Nomura, and Suzanne Elio, a Treasury spokeswoman, declined to comment.
Under the FSOC tag, Nomura would probably face stricter capital standards, have to stockpile easy-to-sell assets, be subjected to stress tests and be compelled to write a so-called living will -- a plan for a fast and orderly bankruptcy.
The Tokyo-based investment bank, which runs Japan’s oldest and biggest brokerage, tried to expand its business at a time when some U.S. firms were retrenching after the 2008 financial crisis. Following Lehman Brothers Holdings Inc.’s collapse, Nomura acquired the company’s Asian and European units.
The FSOC, led by Treasury Secretary Jacob J. Lew, uses a set of financial guidelines as a starting point to help it decide which companies warrant extra oversight.
The council’s designations committee discussed Nomura because it has more than $50 billion in assets and meets at least one of five other thresholds, said the person, who asked not to be identified because the information isn’t public. The firm’s U.S. subsidiary, Nomura Securities International, had $124 billion in total assets, according to a Sept. 30 public disclosure.
Warren Buffett’s Berkshire Hathaway Inc. has also met the FSOC thresholds and been discussed by the committee. No companies, including Berkshire and Nomura, are under what’s known as active review by the council.
FSOC officials in 2013 discussed whether BlackRock Inc. and Fidelity Investments should be considered for designation, though the panel has since decided to focus on asset managers’ products and activities rather than labeling an individual firm as systemically important.
While Nomura has $368 billion in assets, it’s not known for an outsized U.S. footprint. Still, its global interconnectivity and lack of central-bank backing are factors that could make a collapse more difficult for the wider financial system to absorb.
The firm’s U.S. activities include trading stocks and bonds, managing money and private equity. Nomura, which employs more than 2,400 people in the Americas, also operates as one of 22 primary dealers with the Federal Reserve Bank of New York.
Companies designated by the FSOC are regulated by the Fed. So far, the U.S. risk panel has subjected four non-bank financial companies to additional oversight: insurers American International Group Inc., MetLife and Prudential Financial Inc., and General Electric Co.’s finance arm.
The FSOC’s designation process takes several steps that include reviews and recommendations from staff before the top regulators, including Lew, Fed Chair Janet Yellen and Securities and Exchange Commission Chairman Mary Jo White, decide whether to label the firm systemically important.
The council voted Feb. 4 to notify companies sooner that it’s considering whether to designate them systemically important. Companies will now be told when they are under active review, possibly months quicker than they had been, in the third and final stage of evaluation.
The vote followed criticism from financial-industry groups and both Republican and Democrat lawmakers that the council wasn’t transparent enough.
The FSOC can consider companies with more than $50 billion in assets as systemically important if they also meet any of five specific marks that show they’re highly involved in markets for derivatives or credit-default swaps, lean heavily on short-term debt, have more than $20 billion of outstanding debt, or exceed certain leverage levels.
MetLife is proving that even a designation isn’t the end of the debate. The insurer sued the government last month, saying the higher demands it faces repeat existing oversight by the states and will drive up prices for consumers.